At last, IDS gets his chance to reform benefits
Peter Hoskin 9:03am
For some time now, we on Coffee House have been raving about Iain Duncan Smith's plans
for reforming benefits. And, today, it finally looks as though they – or something like them – will soon be put into action. The DWP is releasing a consultation document which aims to
simplify and straighten out a benefits system which now acts as a barrier to work. Over the next few months, various think-tanks and other organisations will submit their own ideas for doing just
that. Someone who will no doubt take part in that process, Policy Exchange's Neil O'Brien, has a written a very useful summary of the main questions and arguments here.
The expectation, though, is that the end result will follow the broad contours of the "dynamic benefits" system proposed by IDS's Centre for Social Justice last September. We've summarised that here and here, among other articles and posts – but the basic idea is that various out-of-work benefits can be rolled together into a universal benefit, which would then fall at a uniform rate as claimants get back into work. This avoids the alarmingly high marginal effective tax rates that claimants currently face. For some, an extra £1 in earned income can effectively put less than 10p into their pocket, as tax increases and benefit withdrawals kick in.
When IDS first proposed his system, George Osborne and David Cameron were said to be put off by the cost. Yes, it would imply savings in the medium to long term, as more claimants got off benefits and back into work – but the upfront costs would be around £3-4 billion. The question was: can we afford that kind of moolah in the age of austerity? And, sifting through the coverage this morning, that question remains. In which case, it's worth noting IDS's confidence on two points in his interview with Evan Davis on the Today programme this morning. First, that his ideas and alternatives have been properly costed. And, second, that he has support for his measures "across government". Indeed, I'm told that although the Team Osborne is still pushing for more affordable solutions, they are broadly behind IDS's plans. It is telling that the Treasury put out its own consultation document yesterday which, as the peerless Nicholas Timmins pointed out in the FT, would smooth the way for a universal benefit.
On the political front, I suspect the debate will largely be influenced by how Labour chooses to respond. So far, their main emphasis seems to be to caricature the IDS plans as "cuts" which would end people's entitlement to tax credits and the like. But Yvette Cooper has shown signs of a more nuanced argument: whether you implement these kinds of reforms incrementally, or whether you go for a more radical, all-in-one approach as IDS proposes. But, in either case, you sense that the public mood is behind the coalition on this issue. And I expect that IDS will hammer home the point today with a speech that goes heavy on the moral, as well as the economic, need for reform.
Parliament may have broken up for summer – and David Cameron's foreign escapades may have attracted the headlines – but this has been a week of important domestic action by the coalition. First, regulatory reform, then police reform, and now benefits reform. This government is turning out to be more proactive than I dared hope for. And, on the whole, it's mightily encouraging stuff.
Previous
JR
July 30th, 2010 9:17am Report this commentThe consultation document was the price to keep IDS on board over the summer. This is going nowhere without a reduced price tag or more pain for "deserving" middle class benefit recipients.
My bet - IDS first Cabinet Minister to resign. Get your money on now.
Chris lancashire
July 30th, 2010 9:39am Report this commentIt beggars belief that a reform intended to make it more worthwhile to work, to cut abuse and reform Brown's byzantine tax credits should cost £3-4bn to implement. Why?
TrevorsDen
July 30th, 2010 10:12am Report this commentOnce again we see a poster, JR this time, parading his prejudice and making assertions that have no foundation in any fact or evidence.
Lets remember that when Frank Field and his plans failed it was because Brown actively campaigned against them despite what had been agreed in cabinet. brown was running his own version of labour policy no matter what the actual elected PM though.
There is nothing of that in the current govt. Osborne believes in the same thing IDS does.
Benefits are there for a reason, we pay them to people who are less fortunate than us and do so out of charity and self interest, it might be us one day, and also we do not want to put unbearable strains on society. Rationalising benefits is likely to cost money as they will probably be rationalised upwards and helping overcome marginal disincentives is likely to cost money too. But good god, 5.5 million able to work but not working. A horrible legacy, we must do something.
PS
'encouraging stuff' ... perhaps you could tell the backwoodsmen on the tory right that Mr Hoskin.
strapworld
July 30th, 2010 10:27am Report this commentMy concern is that unscrupulous employers will keep new employees on wages which means they will carry on claiming benefits.
What checks will IDS be making on these employers. Not all employers are decent types.
Philip Walker
July 30th, 2010 10:42am Report this commentJR: I'll take your money on IDS at any price, and counter-offer any sum you'd care to wager that David Laws was the first Cabinet minister to resign.
davidk
July 30th, 2010 10:56am Report this commentIt'll cost the thick end of £7 billion.
Let's face it: a useless former leader of the party was given a task to keep him busy and out of harms way for a few years.
Enjoy your retirement IDS.
libertarian
July 30th, 2010 10:58am Report this commentLet me first say that I'm broadly in agreement with IDS's proposals.
I think everyone is missing a very, very large elephant in the room though.
In order to make this financially and socially viable you actually need some JOBS for people to you know like actually do.
So far the coalition have shown absolutely no sign of recognising this far less offering packages to actually help.
Just as a hint, this is what business needs in order to create jobs and wealth for the country.
Access to investment capital. Solution , RAISE interest rates, encourage savings, rebuild bank balance sheets. Encourage investment by LOWERING CGT not putting it up
And the really big one, SCRAP payroll taxes, the biggest disincentive to employment creation there is.
If you really wanted a successful wealthy country a flat tax system removing the first £12k from tax entirely would really hit the nail on the head
Remittance Man
July 30th, 2010 11:04am Report this commentI have to agree with Chris,here and demand how on earth a simplified system can cost more.
Sadly I suspect that this is a reult of bureaucratic intransigence. A simplified system will naturally need less bureaucrats to administer it. Since bureaucrats can't stand the thought of brother bureaucrats losing their jobs, how reasonable is it to assume those responsible for costing the exercise ... erm .... erred on the generous side(?), when it came to putting the cost estimates together?
Baron
July 30th, 2010 11:46am Report this commentonly a wholesale scrapping of the Welfare system caring for anyone who wishes to be cared for at the expense of the taxpayer could restore the country to financial health, reduce obesity at a stroke, morph the standards of morality of the great unwashed into something resembling a fair and civil society of free agents respectful of each other and relying on their own labour to cover their needs.
since it’s beyond anyone to engineer such a switch, it will be the eventual implosion of the system, and only the implosion of the system that will restore sanity at a cost far beyond that of mere financial outlays.
TrevorsDen
July 30th, 2010 11:47am Report this commentWho says it will cost 7 billion. And who says its to keep IDS out of the way?
Nope - its just davidk parading his ignorance. the issue is hugely difficult - davidk clearly is not interested and just wants to keep millions of people swept out of the way (because socialists do not give a shit) generating more and more unrest in society.
Sadly thanks to labour and the way they have ruined the pensions industry - very few nof us will enjoy our retirement.
Robert Taggart
July 30th, 2010 11:52am Report this commentAs a life-long (27 years) scrounger one wishes IDS well, no, honestly !
A single allowance / benefit / credit / whatever (!) be the holy grail of welfare reform. IDS has certainly had the time to look into this.
So long as our giros keep coming through ( uprated for inflation )one will not complain !
Victor Southern
July 30th, 2010 12:01pm Report this commentI suppose that as benefits absorb over 40% of the tax base and remodelling will cost 0.5% the question should be "Can we afford not to?"
TrevorsDen
July 30th, 2010 12:25pm Report this commentPS -
Strapworld, surely the way a tax credit currently works is to top up a wage, so the principle is the same. How do we know that the current system is not keeping wages down?
I suspect the current system is so labyrinthine that both you and I would be wasting our time trying to discuss it!
No matter how well meaning you wish to be (and who knows when you or I might need benefits), there coomes a point where benefits distort the market distort society and you need to say there has to be a limit.
On top of which there has to be a limit on what you can afford. Brown spent 13 years saying there is no limit to what we can afford and simply borrowed money he knew he would never repay.
Socialists have to tell us just where the numbers on benefits stop. Just when does the money stop?
JR
July 30th, 2010 2:16pm Report this commentTrevorsDan - I'm not sure who you are but what I posted has its basis in facts. The politics are toxic and no-one wants the same thing. Hopefully a negative tax rate and some playing about under the bonnet of benefits will be implimented - very sensible but the assumptions about the work incentives (and therefore AME savings) are very optimistic particularly if it was implimented when labour demand was weak.
Philip - Indeed "next" was what I was going for. I'll kindly decline your offer in the circumstances.
RemittanceMan - it costs money because you have to smooth the curve between means tested benefits and the amounts to make going into work. Smoothing that curve costs money because you start paying benefits/reducing tax to negative for people in work. Means tested benefits stop people falling into poverty. You can reduce the cost of the proposals by reducing the base levels of means tested benefit from ~£70 per week for a jobseeker, ~£90 for a disabled person, and play around a bit more with housing benefit which is a big element.
Andy Carpark
July 30th, 2010 2:19pm Report this commentMy brother Esau is a hairy man. But IDS is a noisy man.
daniel maris
July 30th, 2010 7:58pm Report this commentI've only heard some brief comments on what is being proposed but I have thought about this long and hard before. There are only two workable main solutions for the UK in my view:-
1. The universal credit (I think it's been mentioned). Sometimes called citizens allowance or basic allowance. It's a bit counter-intuitive...the state handing out large wads of money to everyone, but it's the only way to restore incentives at the lower end of the wage scale. This way you don't lose by going out to work - you gain, substantially.
However from what I have seen of IDS proposals before now, the incentives will be small - perhaps as low as £100 or £2 a week. We need a clear incentive to go to work.
2. We need guaranteed work for those on welfare. Yes, this will be state-provided employment but it could be worthwhile work that will benefit society. Examples could include security guards at Churches so that these wonderful cultural assets can be open to the public; insulation work; providing information kiosks in towns and cities throughout the land; installation of photovoltaic panels on a subsidised basis; additional special constables etc etc.
The unemployed would not necessarily work full time but pro rata to "pay for" their benefits. This would give them a chance to develop their CVs and a work ethic.
There should be a legal duty to support oneself if able.
RAY MORRIS
July 30th, 2010 9:20pm Report this commentPlease everybody remember in all this...there are civil servants employed in their thousands who wish to keep the status quo ..they have got their careers ..head of departments ..commitee meetings case files etc without the scroungers in the sink estates they have not got a job so EDS sorry you aint got a chance ....I don't know when it was that the first £1 was given to someone for not working..but whenever it was there is no going back ...from now on its here untill we all go bankrupt
Boy Mulcaster
July 31st, 2010 1:43am Report this commentPresumably the Universal Credit would be paid in one weekly lump sum for the recipient to take responsibility and use as they need?
This seems to me to overcome a specific problem with the current system - namely, housing benefit. The current system was devised when most recipients were in rented accommodation. Now, they are likely to be "owner"/occupiers. At present, benefit will not meet mortgage payments, for the arcane reason that you are not supposed to gain material reward from benefit. The proposal would overcome that, by allowing individuals to spend their money as they need, not as the nanny state tells them they should.
The universal credit idea is utterly brilliant. It allows individuals to take responsibility for their lives and to live with dignity. This is a once in a generation opportunity to get it right. Please don't let a short term problem like the deficit get in the way - it is worth spending money to make it work.
stephen bennetts
July 31st, 2010 5:10pm Report this commentNothing much will change until and unless there is no guarantee that the state will provide. The biggest incentive for people to look for employment, is not having any income,the state's willingness to provide subsidies ( benefits )is what is being exploited .
Kevin leonard
August 1st, 2010 12:16pm Report this commentWithout real jobs there is no incentive regardless of how the tax system is weighted.
Perhaps it is time to readically think about removing one of the most expensive things stopping growth within our country, the European Union.
Imagine the savings in monetary terms which could be used to take down the deficit and the resultant power to remove all the EU residents currently taking up jobs in the country.
Many on benefits complain there are no jobs to have so removing the European workforce would free some to start with.
As for thiss ne system it will be interesting to see the reaction of some commentators when they realise that those living in the north of the country could be made to accept a lower payment than those in the south east due to the expense of living.
Could this be combined with the fact that the main power base of the conservatives is the south east? surely not!
Incidently I am at the moment unemployed and my partner is medically unfit to work, should I return to work I would need a wage of £300 net per week to make it worthwhile and be free of any government help,By worthwhile I mean to maintain the very poor standard of living I now enjoy; anyone got any vacancies?
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